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The National Treasury has announced a major overhaul of the country’s municipal finance laws, which will include taking over the appointment of chief financial officers of municipalities.

The move is aimed at addressing weak financial management in local government.

Godongwana expected to announce further reform to municipalities

R467bn municipal debt bill puts councils under pressure The overhaul will include modernising both the Public Finance Management Act and the Municipal Finance Management Act (MFMA) to help tackle financial misconduct.

The revamp of public finances forms part of the reforms contained in the medium-term budget policy statement tabled by Finance Minister Enoch Godongwana.

National Treasury said in order to safeguard public finances from further abuse, it will propose writing fiscal discipline into law.

Treasury said writing such a standard into law will create a “Commitment to sound financial management”.

The MFMA will address weak financial and operational management in many of the country’s distressed municipalities.

Finance Minister Enoch Godongwana and Treasury said the proposed changes will see political office bearers and board directors held personally liable for unauthorised and wasteful expenditure.

“It also introduces stronger mechanisms to investigate financial misconduct and recover losses, together with a clearer framework for financial recovery and intervention in distressed municipalities,” said Godongwana.

The proposed changes to the MFMA will also compel earlier, more decisive provincial and national government action when municipalities cannot restore financial stability on their own.

SOE bailouts limited, but fiscal risks remain

Bailouts of state-owned companies have been limited, but they continue to be a thorn in the side of government as major entities still pose a risk to the fiscus, said Godongwana.

The National Treasury added that entities like Eskom, Transnet, Denel and South African Airways may have shown a little improvement, but they continue to be exposed.

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It further explained that the financial position of major state-owned companies remains a major source of risk across entities.

But government support and improvement in operational performance have reduced some of the immediate pressures.

Treasury has noted Transnet’s weak financial position and how persistent municipal arrears continue to pose a liquidity risk for Eskom.

On SAA, Treasury provided a R1 billion guarantee in August to support the airline’s working capital requirements.

But Minister Enoch Godongwana said that bailouts have been limited.

“We limited bailouts of state-owned entities, funded new commitments responsibly and prioritised investment over unsustainable consumption. Before this very house, we were honest about the choices before us. We made it clear that government could not fund every demand at once without risking the country’s fiscal future. Today, that commitment is beginning to pay off.”

Other SOEs that continue to experience liquidity constraints include arms manufacturer Denel, which received guarantees of R 600 million and US $14 million (R229 million) for support.

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